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7/01/2004

How to Price a Baseball Player

Do you guys know how to price a baseball player? This article, written by James Surowiecki, is deeply fascinating to me. If you want to know how to price a baseball player, you can go to "http://slate.msn.com/id/1001883/" and check it out.

In New York City, many people were curious about whether the Yankees would sign Bernie Williams. Also, there was a catcher, Mike Piazza, who had recently been signed by the New York Mets. In the article, Williams is being compared with Piazza, and the writer concludes, "He would not be worth as much as Piazza." Interestingly, he analyzed why based on interaction of supply and demand.

At that time, there were more people playing as centerfielders than as catchers, so the supply of catchers was more inelastic than the supply of centerfielders. Although the quantity demanded for these positions is the same, the quantity supplied was different. That means the quantity supplied for catchers was less than for centerfielders, so the price of catchers is higher, and so some catchers got paid very well even if they did not play well.

In relation to that, the writer says that if the Yankees do not sign Bernie Williams again, they can still easily find another outfielder. Although, he may produce only 70 percent or 80 percent of Williams' output, they can pay him for less money than Williams was going to get $2,000,000 as opposed to $13,000,000. The difference can be used in other ways. On the other hand, the writer says that if the Mets did not sign Piazza, all they could do was find a catcher who produced 30 percent or 40 percent of Piazza's output at almost the same price as they would pay for Piazza.

When pricing a baseball player, the interaction of supply and demand really makes sense to me. If anyone finds another similar example, please post a comment.

1 comment:

This is another great post. If you are interested in this issue you should read "Money Ball" which is about how the Oakland Athletics have had successful teams without spending a lot of money.

More broadly this post also incorporates the idea I've put into a couple of comments that rewards go to those who have fixed resources. Catchers are more valuable because not everyone can do it. A catcher might not be able to play centerfield well, but they will do it better than the centerfielder will play catcher.